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Pediapharm Inc. (TSX VENTURE:PDP)(the "Company" or "Pediapharm") is pleased to file its second quarter financial results ended September 30, 2017. All dollar amounts are expressed in Canadian currency and results are reported in accordance with IFRS accounting principles.

KEY HIGHLIGHTS - PERIOD ENDED SEPTEMBER 30, 2017

In the three-month period ended September 30, 2017, the Company achieved record quarterly revenue of $3,083,397 (three-month period ended September 30, 2016 - $1,882,147), representing an increase of 64% including:

3% increase from NYDA®

32% increase from Naproxen Suspension

Revenue from Relaxa™ which was in line with Management's estimate of approximately $3.1 million on an annual basis

Revenue from Rupall™, launched in late January 2017, which has significantly exceeded Management's original estimate by 60%.

Revenue from Otixal™, launched in May 2017, which were in line with Management's estimate.

In the three-month period ended September 30, 2017, the Company achieved positive Adjusted EBITDA of $87,578 vs ($328, 282) in the three-month period ended September 30, 2016. This is the Company's first quarter with positive Adjusted EBITDA.

In the six-month period ended September 30, 2017, the Company achieved record revenue of $5,548,945 (six-month period ended September 30, 2016 - $2,775,308), representing an increase of 100% including:

9% increase from NYDA®

20% increase from Naproxen Suspension

Revenue from Relaxa™ which was in line with Management's estimate of approximately $3.1 million on an annual basis

Revenue from Rupall™, launched in late January 2017, which has significantly exceeded Management's original estimate by 50%.

Revenue from Otixal™, launched in May 2017, which were in line with Management's estimate.

In the six-month period ended September 30, 2017, the Company achieved Adjusted EBITDA of ($609,519) vs ($1,090,374) in the six-month period ended September 30, 2016.

The second quarter revenue growth of 64% was achieved with a 1% reduction in selling and administrative expenses. In the first quarter, due to Rupall™ and Otixal™ initial launch expenses, selling and administrative expenses had increased significantly as compared to last year. However, as mentioned in the Company's latest MD&A (dated August 24, 2017), Management stated that upcoming quarterly increases in selling and administrative expenses are expected to be minimal when compared to last year. Management expects this trend to continue, unless it sees specific opportunities where additional expenses would generate significant incremental revenue. The Company's plan remains to bring the Company into a positive operating cash flow situation in the next fiscal year.

The Company has net working capital of over $7.2 million as of September 30, 2017, which is almost identical to the net working capital of the Company as of June 30, 2017.

On November 1st, 2017, Pediapharm announced Health Canada's notice of compliance (approval) for Cuvposa™ (Glycopyrrolate oral solution 1 mg/ 5 mL) which is indicated to reduce chronic severe drooling in patients aged 3-18 years with neurologic conditions associated with problem drooling (e.g. cerebral palsy (CP)). The Company expects to commercially launch Cuvposa™ in the quarter ending March 31, 2018 using its current infrastructure.

"We are extremely pleased with the 64% increase in revenue and our first-ever quarter with positive EBITDA/Adjusted EBITDA" stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. "Every product contributed to the growth, including our established brands such as NYDA and Relaxa, as well as newly launched Rupall™ and Otixal™. This, combined with a disciplined approach on our selling and administrative expenses, has lead to this important milestone for Pediapharm. In addition to our current innovative products that are expected to grow for years to come, we will be launching Cuvposa™ in the next few months with our existing infrastructure. We now have a very exciting portfolio of products and while seasonality still has an impact on quarterly results, this bodes very well for the Company and for all of our shareholders".

FUTURE OUTLOOK

The Company has recently launched two new products: Rupall™ and Otixal™. While Rupall™ has only been launched in late January 2017, Management is closely monitoring Key Performance Indicators ("KPIs") such as number of physicians prescribing Rupall™, and is very pleased with the results so far. These early results, combined with the on-going positive feedback from key opinion leaders in allergy, confirm Management's estimate that Rupall™ has an annual peak sale potential of $10-12 million. Regarding Otixal™, which was launched in mid-May 2017, the Company estimates an annual peak sale potential of $4 million.

The Company has recently received Health Canada's notice of compliance (approval) for Cuvposa™ (Glycopyrrolate oral solution 1 mg/ 5 mL) which is indicated to reduce chronic severe drooling in patients aged 3-18 years with neurologic conditions associated with problem drooling (e.g. cerebral palsy (CP)). The Company expects to commercially launch Cuvposa™ in the quarter ending March 31, 2018 using its current infrastructure.

At the same time, the Company continues to execute its commercial plan with existing products, such as NYDA®, a revolutionary treatment indicated for eradication of head lice and its eggs, and Relaxa™, an osmotic laxative used to treat constipation. NYDA® reached approximately $4,200,000 in revenue in fiscal 2017, is expected to reach approximately $5,000,000 in fiscal 2018 and has the potential to achieve annual peak revenues of $6,000,000 to $8,000,000 (IMS data and Management's estimate). Relaxa™ is on pace to reach approximately $3.1 million of revenue on an annual basis.

With the Company's established brands, NYDA®, Naproxen Suspension and Relaxa™ alone, the Company is confident to generate approximately $8.5 million of revenue in fiscal 2018 (year ended March 31, 2018). This does not include revenue from Rupall™, Otixal™ and Cuvposa™.

With its existing solid infrastructure in place, Management estimates that increases in selling and administrative expenses will be minimal even with its projected substantial revenue growth in quarters and years to come. Management therefore estimates that the Company will be in a positive operating cash flow situation in the next fiscal year.

Pediapharm has a portfolio of products which Management believes will enable the Company to reach annual peak revenue of $30,000,000 to $35,000,000 along with projected EBITDA of approximately 30% to revenue. The projected peak sales forecast is based in using IMS data and the Management's estimate in the market share to be captured for each of the product. The following represents projected peak sales for the main products:

PRODUCT

INDICATION

EST. ANNUAL PEAK SALES (CDN$)

LAUNCH DATE OR EST. LAUNCH DATE

NYDA®

Head lice treatment

$6-8M

2012

Relaxa™

Occasional constipation

4-6M

Acquired by Pediapharm in September 2016

Naproxen suspension

Juvenile Arthritis - Medical Pain Conditions

1-2M

Re-launched by Pediapharm in March 2015

Rupall™

Symptoms of Allergy - Urticaria

10M-12M

January 2017

Otixal™

Ear Infection

4M

May 2017

Cuvposa™

Severe Drooling - Cerebral Palsy

4-5M

Approved in Oct 2017

TOTAL

30-35M

Now that Pediapharm has positioned itself with a strong portfolio of products as shown above, for which all of the regulatory investments are behind, the Company's core strategy regarding business development has recently evolved to focus more on acquisitions of products with existing sales and on co-promotion for products already approved in Canada. In parallel, Pediapharm still assesses additional exclusive licensing agreements (commonly known as "in-licensing") as well as potential product acquisitions. The key objective is to generate profitability in a timely fashion.

In summary, the Company has a solid cash position to execute its business plan, including the recent launches of Rupall™ in January 2017 and Otixal™ in May 2017, as well as the upcoming launch of Cuvposa™. Furthermore, Pediapharm expects continuous revenue growth from Pediapharm's established brands such as NYDA®, Naproxen Suspension and Relaxa™. Management estimates that the upcoming expected revenue growth and stable operational expenses will bring the Company into a positive operating cash flow situation in the next fiscal year. In parallel, the Company is in the process of assessing potential product acquisitions with the key objective to accelerate its strategy to generate positive cash flow over a short period of time. Pediapharm is a growth company in the high-margin specialty pharmaceutical industry, and when opportunities arise to feed that growth, it may raise incremental capital to provide for necessary funding and flexibility.

Review of operating results for the period ended September 30, 2017

REVENUE

For the three months ended September 30, 2017, total revenue reached $3,083,397 compared with revenue of $1,882,147 in the three months ended September 30, 2016, representing a 64% increase. Revenue from NYDA® increased by 3%. Management also closely monitors data from IMS Health, an audited third-party provider of sales data, which shows an increase of 11% for that same period. Revenue from Pediapharm naproxen suspension increased by 32%. Management is very pleased with the results of Rupall™ and Otixal™ which we were both recently launched. This quarter also included revenue generated from Relaxa™ as a result of the September 19, 2016 transaction, which is line to achieve $3.1 million on an annual basis.

For the six months ended September 30, 2017, total revenue reached $5,548,945 compared with revenue of $2,775,308 in the six months ended September 30, 2016, representing a 100% increase. Revenue from NYDA® increased by 9%. Management also closely monitors data from IMS Health, an audited third-party provider of sales data, which shows an increase of 14% for that same period. Revenue from Pediapharm naproxen suspension increased by 20%. Management is very pleased with the results of Rupall™ and Otixal™ which we were both recently launched. This quarter also included revenue generated from Relaxa™ as a result of the September 19, 2016 transaction, which is line to achieve $3.1 million on an annual basis.

GROSS PROFIT AND MARGIN

When comparing periods, in addition to focusing on gross profit dollars, it is also appropriate to focus on the gross margin as a percentage of revenue. Since there is no cost of sales related to revenue from commissions, the following gross margin percentages are calculated using cost of sales and revenue from products only. In addition to actual cost of goods and royalties paid to partners, gross margins are impacted by amortization of assets generating revenue, allowances for potential product returns as well as warehouse and logistics expenses.

For the three months ended September 30, 2017, gross profit reached $1,715,228, representing an increase of 39% (three months ended September 30, 2016 - $1,230,678). Gross margin as a percentage of revenue was 56% (three months ended September 30, 2016 - 64%). The main reason for the lower gross margin percentage is related to Relaxa™, which has lower gross margins due to the nature of its product category. Over time, with the expected revenue growth from NYDA®, Rupall™ and Otixal™, Relaxa™ will represent a smaller percentage of revenue and hence, Management estimates that total gross margins as a percentage of revenue will improve and ultimately reach 60-70%.

For the six months ended September 30, 2017, gross profit reached $3,002,278, representing an increase of 64% (six months ended September 30, 2016 - $1,830,352). Gross margin as a percentage of revenue was 54% (six months ended September 30, 2016 - 64%). The main reason for the lower gross margin percentage is related to Relaxa™, which has lower gross margins due to the nature of its product category. Over time, with the expected revenue growth from NYDA®, Rupall™ and Otixal™, Relaxa™ will represent a smaller percentage of revenue and hence, Management estimates that total gross margins as a percentage of revenue will improve and ultimately reach 60-70%.

SELLING AND ADMINISTRATIVE EXPENSES

For the three months ended September 30, 2017, selling and administrative expenses reached $1,783,377 (three months ended September 30, 2016 - $1,797,845). For the six months ended September 30, 2017, selling and administrative expenses reached $3,917,893 (six months ended September 30, 2016 - $3,281,494). As stated in the Company's latest MD&A dated August 24, 2017, while the first quarter included many initial and strategic investments in supporting the commercial launches of Rupall™ and Otixal™, subsequent quarterly selling and administrative expenses were expected to remain close to last year's. Management believes these investments in Rupall™ and Otixal™ are key to the overall success of the Company.

OTHER INCOME

In the three and six months ended September 30, 2017, there was nothing to report as other income. In the three months ended June 30, 2016 the Company received the second and final payment of US$2 million in cash ($2,570,200) from the sale of the US rights to the drug Naproxen Suspension in a transaction valued at approximately US$4.25 million.

OPERATING PROFIT OR LOSS

The operating loss for the three months ended September 30, 2017 was $52,177 compared to $580,117 in the three months ended September 30, 2016, representing an improvement of $527,940. The main factors explaining this improvement are the significant increases in both revenue and gross profit while keeping selling and administrative expenses at the same level as last year.

The operating loss for the six months ended September 30, 2017 was $889,939 compared to an operating profit of $1,111,667 in the six months ended September 30, 2016. In the six months ended September 30, 2016, the Company benefited from the sale of its US rights to the drug Naproxen Suspension, which had a positive impact of $2,570,200.

NET PROFIT OR LOSS

The net loss for the three months ended September 30, 2017 was $336,631 compared to $838,321 in the three months ended September 30, 2016. In both periods, the difference between operating loss and net loss is mainly due to approximately $270,000-$295,000 in finance costs. The majority of the aforementioned finance costs are related to the March 31, 2015 private placement of secured, convertible debentures of the Company and share purchase warrants of the Company for aggregate gross proceeds of $5,500,000.

ADJUSTED EBITDA1)

Adjusted EBITDA, defined in a previous section of the MD&A, for the three-month period ended September 30, 2017 was $87,578 compared to ($328,282) for the three-month period ended September 30, 2016. The improvement is mainly due to the increase gross profit driven by a 64% increase in revenue. Adjusted EBITDA, for the six-month period ended September 30, 2017 was ($609,519) compared to ($1,090,374) for the six-month period ended September 30, 2016. The improvement is mainly due to the increase gross profit driven by a 100% increase in revenue. This was somewhat offset by an additional approximate $600,000 in initial selling and marketing expenses related to the launches of Rupall™ and Otixal™, which occurred in the three months ended June 30, 2017.

September 30, 2017
(3 months)

September 30, 2016
(3 months)

September 30, 2017
(6 months)

September 30, 2016
(6 months)

Revenue from Products

$

3,083,397

$

1,803,397

$

5,546,240

$

2,614,643

Revenue from Commissions

-

78,750

2,705

160,665

TOTAL Revenue

3,083,397

1,882,147

5,548,945

2,775,308

Gross Profit

1,715,228

1,230,678

3,002,278

1,830,352

Selling and administrative expenses

1,783,377

1,797,845

3,917,893

3,281,494

Other Income

-

-

-

2,570,200

Operating profit (loss)

(52,177

)

(580,117

)

(889,939

)

1,111,667

Net profit (loss)

(336,631

)

(838,321

)

(1,454,560

)

604,474

Cash flow from (used in) operating activities

(852,795

)

(1,303,782

)

(2,927,489

)

254,771

Cash flow from (used in) investing activities

(864

)

(85,570

)

(299,132

)

(85,570

)

Cash flow from (used in) financing activities

(26,275

)

-

4,956,967

(377

)

1) EBITDA and Adjusted EBITDA are non-IFRS financial measures. The term EBITDA (earnings before interest, taxes, depreciation and amortization,) does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing a further understanding of operations from management's perspective. The Company defines Adjusted EBITDA as earnings before financing costs, interest expenses, income taxes, interest income, depreciation of property and equipment, amortization of intangible assets, non-cash share-based compensation, income from sale of asset and impairment of intangible assets. The Company considers Adjusted EBITDA as a key metric in assessing business performance and considers Adjusted EBITDA to be an important measure of operating performance and cash flow, providing useful information to investors and analysts. Adjusted EBITDA for the three-month period ended September 30, 2017 was $87,578 compared to ($328,282) for the three-month period ended September 30, 2016. The improvement is mainly due to the increase in gross profit driven by a 64% increase in revenue. Adjusted EBITDA for the six-month period ended September 30, 2017 was ($609,519) compared to ($1,090,374) for the six-month period ended September 30, 2016. The improvement is mainly due to the increase in gross profit driven by a 100% increase in revenue. This was somewhat offset by the additional selling and marketing expenses related to the initial launch of Rupall™ and Otixal™.

For the
3-month period ended
September 30,
2017
$

For the
3-month period ended
September 30,
2016
$

For the
6-month period ended
September 30,
2017
$

For the
6-month period ended
September
30,
2016
$

Net Income (Loss) and Comprehensive Income (Loss)

(336,631

)

(838,321

)

(1,454,560

)

604,474

Add Back:

Depreciation & Amort. (property, equipment, intangible assets)

53,191

31,068

98,103

61,420

Amortization of financing fees

43,936

34,475

85,288

66,293

Interest expenses

168,667

170,500

335,500

337,336

Other non-cash finance costs

82,214

65,658

159,934

127,727

Interest income

(10,363

)

(12,429

)

(16,101

)

(24,793

)

EBITDA

1,014

(549,049

)

(791,835

)

1,172,457

Income from sale of assets

-

-

-

(2,570,200

)

Share-based compensation

86,564

220,767

182,316

307,369

ADJUSTED EBITDA

87,578

(328,282

)

(609,519

)

(1,090,374

)

About Pediapharm Inc.

Pediapharm is the only Canadian specialty pharmaceutical company dedicated to serving the needs of the pediatric community. Its mission is to bring to the Canadian market the latest innovative pediatric products with the objective to improve the health and the well-being of children in Canada. Since its debut in 2008, Pediapharm has entered into numerous commercial agreements with partners from Canada and other countries around the world. The Company's innovative product portfolio includes NYDA®, a breakthrough treatment for head lice; Relaxa™, an osmotic laxative used to treat constipation; EpiCeram®, a non-steroid emulsion for eczema; naproxen suspension, indicated to treat pain and inflammation due to various conditions, including Juvenile Idiopathic Arthritis; Rupall™, an innovative new allergy medication with a unique mode of action; Otixal™, the first and only antibiotic and steroid combination ear drop available in single, sterile, preservative-free and unit-dose packaging; and Cuvposa™, for chronic severe drooling, a condition affecting a significant proportion of cerebral palsy patients.

FORWARD LOOKING STATEMENTS

This news release contains forward-looking statements and other statements that are not historical, including statements pertaining to the management's expectations of the use of proceeds and the expected timing of the required regulatory approvals. Such forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to vary materially from the results or events predicted in these forward-looking statements. As a result, investors are cautioned not to place undue reliance on these forward-looking statements.

The forward-looking statements contained in this news release are made as of the date of this release. Except as required by applicable law, the Corporation disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking information reflects the current expectations or belief of the Corporation based on information currently available and such information is subject to a number of assumptions, risks and uncertainties including those described under the heading "Risk Factors" in the Company's Annual Information Form (for the year ended March 31, 2016) available on SEDAR at www.sedar.com and other risks associated with being a specialty pharmaceutical company.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.